Common Financial Terms Every Adult Needs to Know

Common Financial Terms Every Adult Needs to Know

When it comes time to buy a car or house, plan for retirement or prepare for another major financial event, understanding the complex terminology can be overwhelming. Dominion Energy Credit Union is here to help you make sense of common financial terms so the next time you need to make a major financial decision, you have the vocabulary to set you up for success.

Bank Account Terminology

Most of us have checking and savings accounts to manage our money. Here are some terms you may encounter while doing your everyday banking.

• Electronic Funds Transfer (EFT): Electronic funds transfer, or EFT, refers to the many types of electronic payments, including direct deposit, online bill pay and electronic debits.
• ACH: An electronic money transfer system for payments. These transactions are called electronic debits, or ACH (Automatic Clearing House) transactions, and are often managed through online banking. You may see ACH in front of transaction details on your account statement, meaning they handled the transfer. Real-life examples may include your monthly gym membership, Netflix or car insurance.
• Debit Card: This is a plastic card that allows you to perform POS or ATM transactions on your account, authorized with your PIN or signature. See what benefits our Visa^® debit cards offer.
•  Direct Deposit: A service commonly used by employers to deposit regular monthly payments directly into your chosen account, rather than receiving a check. Most often, direct deposit is processed via ACH, and it is the safest and quickest way to get paid.
• eStatement: An eStatement is an electronic version of your statement that you can view, print, or download at your convenience.
•  Internal Transfer: When you transfer money between your Dominion Energy CU accounts, this is known as an internal transfer. You can transfer money using online banking, an ATM or by visiting a branch.
• Overdraft Protection: If you try to spend or take out more money than you have in your account, your account will be overdrawn. Overdraft protection allows you to link one account to another, so your transactions are covered by both balances or available credit.
•  Routing Number: This nine-digit string of numbers is on the bottom of your check, to the left of your account number. Each financial institution has a unique routing number to ensure money goes to the proper institution. You’ll need your routing number if you are setting up direct deposit, transferring money between institutions, paying bills by direct debit and receiving tax refunds. At Dominion Energy CU, our routing number is 251082644.
• APY: APY stands for annual percentage yield and is typically associated with deposits or investments. APY is the annual interest rate earned on qualifying accounts, representing the yearly amount of money returned to the owner. Certificates of Deposit/Savings Certificates, as well as special checking and savings accounts are common interest-earning accounts.
• Wire: A wire is an electronic message system, that allows banks to send and receive money between accounts.

Lending Terminology

• Credit Score: A credit score is a number assigned to a person that indicates to lenders their capacity to repay a loan. Tap into our free, ongoing credit score report and monitoring program to stay on top of your credit.
• Debt-to-Income (DTI) Ratio: A personal finance metric that compares your total monthly debt payments to your gross monthly income, often used by lenders to approve loans. You can find out your DTI Ratio by using our free credit score program in Digital Banking.
• Principal: The original sum of money borrowed on a loan (excluding interest) or the base amount you invest. On a mortgage or student loan, the amount of money you borrow is considered the principal. When you make a monthly payment, however, you are paying back the principal plus interest accrued and any related fees.
• Fixed Rate: A fixed interest rate loan is a loan where the interest rate doesn’t fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments. Variable rate loans, by contrast, are anchored to the Prime Rate, the most common index for the base interest charged for most loans.
• Variable Rate: A variable interest rate is an interest rate on a loan that fluctuates over time because it is based on an underlying benchmark interest rate or index that changes periodically.
• Loan Term: This indicates the amount of time a borrower is granted to repay a loan. For example, auto loans can have up to 60-month terms, while mortgage loans are commonly offered in 30-year terms and 15-year terms.
• APR: APR stands for annual percentage rate. It represents the annualized interest percent to be paid on your loans balance. APR includes any fees an institution may charge.

Financial Planning Terminology

•  Beneficiary: A person who is designated to receive distributions from a trust, 401(k) plan, IRA, will or life insurance policy is known as a beneficiary. For example, if you have a 401(k) plan through your employer and pass away suddenly, your beneficiaries will receive the money you’ve saved. Contact us to ensure your DECU account beneficiaries are set up as you wish.
• Estate Plan: An estate plan is a document created by an attorney that outlines what will happen to your money and assets when you die or become incapacitated. Generally, the goal is to reduce taxes and make it easier for living family members to manage financial-related issues. Estate plans include specifics about how assets will be handled with heirs and how estate taxes will be addressed, as well as naming of beneficiaries for things like IRAs, 401(k) plans and life insurance policies. Estate plans also generally reference a person’s will.
• Power of Attorney: When someone else has the power to act on behalf of another person’s legal matters, this is known as power of attorney. Someone who is overseas on military deployment, undergoing major surgery or even unable make a mortgage closing may grant power of attorney to another person.
•  Trust: A trust is a legal document that certifies ownership of assets. A trust generally has many provisions that determine how and when assets can be divided or distributed, and offers tax breaks. For example, a person may set up a trust for a child but not grant access to the money until the child turns 21. A trust can also be used to provide income to a family member who may need regular financial support because of a disability. There are many different types of trusts available, from a revocable living trust to a charitable trust.

Now that you’ve explored the basics, you can feel more comfortable making your next big financial decision. Want to learn even more? Tap into our full financial terminology library. At Dominion Energy Credit Union we’re always here when you need us. Contact us today, or visit one of our Virginia branches.